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Episode #5: Note Investing 101 with Liz Brumer-Smith

Note investing is often an overlooked investment strategy. Many investors view it as too complicated or difficult to break into. However, investors armed with a sound strategy, a clear process, and experienced team can certainly benefit from this unique investment style and enjoy great returns and the opportunity to help find creative solutions for people in difficult situations. 

Millionacres, is incredibly lucky to have a highly experienced note investor on our team, Liz Brumer-Smith. Liz has tried numerous real estate investing strategies from rentals to self-storage to fix and flips but found note investing to be her niche. Liz’s writing is available on Millionacres.com at https://www.fool.com/millionacres/authors/profile/liz-brumer-smith/, and you can find information about note investing and other investing strategies on our website at https://www.fool.com/millionacres/real-estate-investing/

In this episode, Millionacres Editor, Deidre Woollard, sits down with Millionacres contributor, Liz Brumer-Smith, to discuss the ins and outs of note investing.

Transcript

Liz Brumer Smith: There are a lot of people who think note investing is too complicated. It just doesn't fit with them or it doesn't align with their personal strengths, I guess, and that's fine. But for those who take on a more analytical side or enjoy diving into online research, they are good at looking through little minute details and crunching numbers. I think this is a really wonderful avenue of investing, especially considering that you can do this remotely from anywhere. I also think it's a really wonderful opportunity to not just profit, but hopefully be able to help people in the process because there are some really creative ways that you can help people move on with dignity and find positive solutions when they're in a really tricky situation. [MUSIC]

Deidre Woollard: You are listening to the Millionacres Podcast. Our mission at Millionacres is to educate and empower investors to make great decisions and achieve real estate investing success. We provide regular content and perspective for everyone from those just starting out to seasoned pros with decades of experience. At Millionacres, we work every day to help demystify real estate investing and build real wealth. [MUSIC] Hello, I'm Deidre Woollard, an editor at Millionacres and this is the Millionacres Podcast. Thank you so much for tuning in. Today, we're going to talk about a topic that not a lot of people think of when they think about real estate investing and that's mortgage note investing. We're lucky at Millionacres because we have an experienced note investor on our team, Liz Brumer Smith. Liz has tried a lot of real estate investing ideas from rentals to self-storage, to fix and flips, but she really found note investing to be her niche. So today, Liz and I, are going to walk through the basics of note investing. Hi, Liz, thank you so much for doing this with me.

Liz Brumer Smith: Thank you so much for having me. I'm excited. I love talking about note investing.

Deidre Woollard: That's great. Because I feel like it's one of those topics that gets lost and left out of real estate investing conversations. It's something that a lot of people may not consider. But one of the things I really want to discover is to give people the idea of if it's right for them. Let's start with the basics. What exactly is note investing?

Liz Brumer Smith: Note Investing is when you are actually partaking in the debt that is secured by real estate. So just like a bank creates a mortgage, when you go to buy a house or you go to buy an investment property, you would get a loan from a bank and the bank is secured for your repayment of that debt over time by the property, so you have your mortgage payment each month and hopefully all is well. You pay your mortgage at an agreed interest rate for 15, 30 years, whatever it would be and the bank gets their money. You invest in a property or you have your home now. When you invest in that note, what you're doing is stepping into the shoes of the bank. So rather than investing in a property, you're actually investing in the debt that's secured by that property. I would call a bank that sell mortgage notes like this all the time, so you can actually buy the debt that's secured by the property and act as the bank in that scenario. You would then be the one collecting the mortgage payments each month from the homeowner or the investor and hopefully, if all goes well, you just get to collect the mortgage for the remainder of its life. If it doesn't, you're always secured by the property. So that's note investing in a very quick summary of what note investing is.

Deidre Woollard: Well, that's awesome. Thank you. So how did you get started in note investing?

Liz Brumer Smith: I actually got my start back in 2012, pretty much after the Great Recession, when there was a huge surge in mortgage delinquencies and so there was a lot of pressure on banks at the time. Banks were closing like crazy because there were so many people defaulting on their mortgages. Banks aren't made to really take back properties; they're made to collect interest. That's how they make their money. The more money they have, the more they're able to lend. So this business model relies on people paying those debts back, and when too many people default on those debts, it creates an imbalance. That kind of motivated a lot of banks to avoid going under, to sell off any assets that weren't paying. So all those mortgages that started defaulting, they started selling at discounts. After the Great Recession, there was a huge, huge opportunity for note investors to buy mortgage notes that weren't paying at steep, steep discounts. We were able to pick up mortgages back in 2012-2015 for anywhere from 20-30 cents on the dollar. Sometimes up to 40 cents on the dollar. Then you would have the opportunity to try and work that mortgage no doubt, find out why they stopped paying, find out if they want the home. If not, there are alternative routes I'll talk about a little bit later in this podcast. But that's how I got my start; it was really because of the opportunity in the marketplace.

Deidre Woollard: So who is this really right for? I mean, you're an individual investor, is this something individual investors should or could get involved in?

Liz Brumer Smith: I definitely think note investing is not for everyone. It does take a certain skill set to succeed and enjoy this business really. I mean, some people really like to get their hands into the property or be a part of the design process, so they really like actually physically working on it or talking with renters. Everyone has different skill sets and strengths, so I think that needs to be taken into consideration, but pretty much anyone can do it. It just is really a matter of if it's the right fit for you. Note investing was really my first entry into real estate. I had learned about other avenues like wholesaling, fix-and-flip rental properties. I dabbled in those areas, and then when I found note investing, it really appealed to me because it can be done from anywhere. So I live in an RV and travel full-time freelance writing with Millionacres and sharing all about real estate investing. But I also invest in notes from my RV. So I love that this industry can be done as long as you have an internet connection and the ability to make some phone calls. It also can be an option for those who are looking to widen their market. A lot of investors stick to their local market when they invest, which is there's nothing wrong with that. But depending on where you're at, it might be too expensive, or it can be really competitive market and so it makes it difficult to find quality or worthwhile investments. Note investing is done on a nationwide basis, so there's a lot of opportunity and there's a lot of inventory. You definitely still have competition in this space. I don't think there's any real estate investing niche that doesn't have people also doing that niche, but I think it's definitely less than what you're going to see, especially in top-tier markets. So I think anyone can learn this business, but being comfortable with doing things online, being comfortable with things like spreadsheets, being able to run numbers, being an analytical person is definitely something that will help you succeed in this business.

Deidre Woollard: Well, certainly, I know that that kind of lifestyle angle would be appealing for a lot of people that you don't have to necessarily deal with a property directly. I know there are a couple of categories here, like all other real estate, there's residential and commercial. So should investors specialize in one type and is one type harder to get into than the other?

Liz Brumer Smith: There's a lot of different facets of real estate mortgage notes. The two main categories you just mentioned are residential and commercial and then there's subcategories below each of those. So in both residential or commercial, you can have a first lien or a second-lien mortgage. The first lien means that a first-lien position note is the highest level of security. It means that, and I will just do a simple example of a house. You're going to buy a rental property. You put 20 percent down and you get a loan from a bank for the remainder. That bank is in the first-lien position; they have the highest security for repayment. Now, let's say after 15 years, you have some equity built up and you decide you want to use that equity to go buy another rental property. So you take out a HELOC, which is a home equity line of credit. So you take out a HELOC from another bank. You still have your first mortgage. You are still paying that mortgage, but now you have an additional line of credit that you're using and you have a payment on that. That bank, bank number 2 is in the second position, which means that they get repaid after the first. So if you were to stop paying on your mortgage, maybe the market crashed and you just couldn't keep up, you don't have a tenant there. Unfortunate. But it does happen. The first-lien position is more secure, meaning they can wipe out that second-lien position because they are in higher priority. The second-lien mortgage can also foreclose to try and get the property back, but if the first starts foreclosure before them, they can eventually be wiped out. So first-lien positions are the most secure investments. No matter if you're in residential or commercial, they are priced higher because of that, because you get more security. But that's typically what a lot of people like to target. Second-lien mortgage notes are also available for residential and commercial mortgages, but they're typically a lot cheaper because you are taking on more risk. Those are two facets that you can buy for both of them. When you do decide, if you decide to jump into note investing, you can branch into either of those, but that's going to be a big determinant; are you investing in first or are you investing in seconds? Then of course, there's performing mortgages and the nonperforming. Nonperforming is pretty self-explanatory. It means people aren't paying. Those obviously have much bigger discounts than someone who is paying on time or has been paying on time for a long period. So out of the two big categories for residential and commercial, residential is probably going to be the easiest for someone who is just getting started just because it's more financially accessible. Commercial real estate in general is more expensive. You could be looking at even just a 10-unit apartment complex that could be over a million dollars. So even a mortgage note, whether it's paying or not, is going to be reflective of the value; unless you have more capital to invest upfront, residential is probably the easier starting point out of the two.

Deidre Woollard: That makes sense. I had a question on the performing. How long does the borrower have to not pay before it's considered a nonperforming note?

Liz Brumer Smith: Performing loans, banks create mortgages and then sell them as a part of their business model. Very rarely is a bank who originates a loan going to be the one who collects on that loan for the remainder of its life. It's just not in their business model. They will sell performing loans almost instantly, sometimes after 30-60 days of collecting on that mortgage, sometimes immediately after originating it. Then, the nonperforming loans have different stages. There's going to be 30 days late, and then it goes to 60 days late, and then 90 days late. Anything that's after 90 days are considered non-accrual loans. Those are considered loans that are unlikely to be repaid or unlikely to become performing again. That's typically when you would start to see it be labeled as a truly nonperforming loan. Most banks or lending institutions don't really look to sell off loans unless they are in late stage non-accrual, which means pretty far beyond that 90-day period, probably about six months or longer for a lack of pay history, but it really depends on how badly the bank needs money. Banks sell these type of assets only when they absolutely have to because they are technically taking a loss on them. They need that capital by selling them at a discount, and they are willing to sell them a discount to gain liquidity.

Deidre Woollard: Interesting. With those, they feel like maybe potentially those non-accrual are a little bit of a lost cause and then they can get rid of them for whatever they can get on them?

Liz Brumer Smith: Correct. It provides them with more liquidity which they have ratios they have to maintain. A lot of times, the banks or the lending institutions that do sell off these nonperforming loans, sometimes it's just to simplify their portfolio because they don't want to deal with them, like you said, writing them off because they don't seem like they're going to pay, and they'd rather just get some money for them, it doesn't really matter. Then there's other times that they'll actually be pressed to sell because their liquidity ratios are off, and in those cases, you might see large selloffs of mortgage loans.

Deidre Woollard: Interesting. As a note investor, some of the benefits obviously would be that you can do this from anywhere and that you can get benefits and a good paycheck if you can make a borrower pay. But what are some of the risks?

Liz Brumer Smith: Note investing definitely is probably for a more risk-adverse investors who have a higher risk tolerance, especially on the nonperforming mortgage note world. Performing loans can actually be very consistent and reliable income sources since you're investing in the debt, and you're not investing in the actual real estate. You don't have to deal with tenants; you aren't really communicating with the borrower very frequently; you are pretty much just collecting passive income each month. There's companies, like a servicing company, who will be licensed in the state that the mortgage is in, and for a very small monthly fee, they will help collect all of the payments. They will reach out to the borrower, send notices each month to the borrower about payments. If it's a performing loan, it's a really hands-off passive investment, I think even more than most rental or other residual income real estate investments can be. To me, it's the top of the top, which is why banks do it. Banks are in the business to make money and they want to do it as passively as possible, so you're essentially doing what the banks are doing. That's the biggest benefit, is if you're looking for passive income that's truly hands-off, I really think performing loans can be a wonderful avenue. You don't have to be there to manage it. You don't even have to be in the same city as the property. That's all. You don't need it. Then when it comes to nonperforming notes, that is definitely a more active investment strategy. You can turn that into a passive opportunity eventually, but it's definitely a more risky investment avenue and it's more active. When you buy a nonperforming note, your job is to hopefully work with the borrower and figure out what happened. Why did they stop paying? What can they pay now if they are able to pay? Do they even want to stay in the home? Is the home vacant? You can just move forward with getting back to the property through foreclosure or legal action. There is a lot of avenues that can end up being your exit strategy for how you make money with it, and that flexibility and the multiple avenues for creative solutions can lead to really big payoffs; some of the best investments I've ever made. Even when compared to REITs, which you know from investing at the stock market can reward those who are patient and make wise investments handsomely, but note investing has definitely paid off big time for me. On certain deals, I've made 200-300 percent return on my investments for some mortgage notes. But we've also had some that have gone very south. That's the risk to reward, is you can make big payoffs if it goes well, but there's also a lot of things that can cause major delays. You can have litigation. You can have properties since you can't get inside the property before. You're the bank. You have an interest in the property, but you don't own it so you can't just knock on the door and say, "Hey, I'd like to get inside and assess the property's condition before I buy it." You are buying the note so you're taking a risk of buying something without being able to see inside. Sometimes that's good, and sometimes that's really bad. Normally, because of that, there's deep discounts when you are purchasing these because they do realize the risks that are involved. The greater the risk, typically, the greater the discount.

Deidre Woollard: Great. Thank you. We're about halfway through our time, so I want to take a quick break and remind our listeners that they can always find some excellent free resources on millionacres.com. Our investment guide section in particular is a great place to start if you're interested in information on a variety of different investing strategies. Checkout the show notes for the link. [MUSIC] We're back with Liz Brumer, one of our writers at Millionacres and an active note investor. In the second half, let's dive into the specifics of note investing. First of all, how much does it take to get started in note investing and how many notes do you have to buy?

Liz Brumer Smith: That varies. To get started, really, you can be as small or as big as you want in the space. Banks aren't going to be selling mortgage notes to small investors. You, 100 percent can buy one mortgage note or two mortgage notes at a time, and you also can buy millions of dollars of mortgage notes at a time. There are sub-sectors of note investing, where you fall into place based on the amount of capital you have, and probably your experience level as it relates to the amount of capital you have. If you want to get started and you're saying, "This is really interesting. I would love the opportunity to help homeowners in need, or I love the idea of passive performing mortgage notes." If you don't have hundreds of thousands, or more likely even millions of dollars at a time, then you are going to want to work on the small-scale, where you aren't buying from these big banks. The banks are selling what they call pools of loans, and those are large numbers or large groups of mortgage notes. They could be performing, nonperforming first, second, residential, commercial, it really depends on the bank. They sell those to one person in one sale. You could be seeing Fannie Mae and Freddie Mac, they sell off mortgage loans all the time in pools but to institutional investors. Those would be like funds, hedge funds, private equity funds that specialize in buying mortgage notes. Those people are the large players. They are buying hundreds of loans at a time, or dozens of loans at a time, and managing the portfolio. Sometimes they sell those loans that don't fit their criteria. Maybe they are saying, "Okay, well, we only want properties in these 30 states and we only want properties that are above $200,000 in value." Anything that's below that, they could either write those loans off and they just literally write them off, or they sell them to smaller investors. When I got started, I was definitely fell into the smaller investor category. I would just find the funds that bought in big amounts, and then we're selling either the assets that they didn't want or sometimes they'll even buy them just to sell them to smaller investors like myself. I would buy one or two loans at a time. Then, eventually, as my experience and the capital I had available to invest grew, I would start buying five at a time or 10 at a time. You can scale yourself up from there, but it really depends on what type of notes you're buying. If you're buying performing or nonperforming, or if you're buying residential, or commercial will depend on how much capital you really need. Second mortgages on a residential property, you can pick those up for a few thousand dollars. I know people who have bought second mortgages for $500. I know people who have bought second mortgages for 350,000. It really relates back to what's the collateral behind it and what's that value. If it's a mortgage that only has a balance of $2,000, of course, you're not going to pay more than the balance. If it's a property that's only worth $50,000, you're not going to spend a lot of money on that. But if it's a nice home in California that's worth $500,000 or more, then you can expect to spend more. So it really depends on the market, the collateral, and the balance.

Deidre Woollard: Interesting. Are you buying these through an LLC?

Liz Brumer Smith: I definitely suggest investing through an LLC. The only time that I probably wouldn't suggest working through an LLC when you're investing is within the stock market like with REITs. I don't think you necessarily need to do that through an LLC. I think that would be somewhat of a hindrance. But anytime you're actively investing or passively investing and you're secured by some debt or real estate, I definitely think it should be done through an LLC. We actually have separate LLCs. One for when we have nonperforming notes that we think are likely we're going to take back, kind of shorter term investments, and then I have an LLC that we keep our longer term performing mortgage notes in, because those have different tax implications that having LLC structured in different ways can be of benefit.

Deidre Woollard: That makes a lot of sense. Is there competition for these notes? Are you in competition directly against other note investors?

Liz Brumer Smith: Yes, definitely. I don't think there's any market in real estate that you're probably not going to face some competition.

Deidre Woollard: True.

Liz Brumer Smith: Even though you are nationwide, note investing has become a much more popular way to invest, especially after the Great Recession, and so people are interested in this avenue. That means that finding a quality seller who has worthwhile inventory is really valuable. Because especially if it's not a super well-known seller, you can have access to really great priced mortgage notes, performing or not. It's not just in the banking world either, which is nice. You can find your niche within the niche. Private sellers also create mortgages all the time using owner financing or seller financing. That means they owned a property, and they decided to sell, and instead of the buyer going to a bank to get a loan, they offer financing to the buyer, and the buyer pays them over time, just like they would pay a bank. In that instance, it's called a private mortgage, and there are billions of dollars in private mortgages created throughout the nation. That's also another avenue for finding performing and non-performing notes. You don't have to just go the institutional route with banks or lenders. You can send letters through a direct mail campaign to try and find private mortgage holders, and they can sell the mortgages for a discount, too. There's definitely competition, but there's also a lot of opportunity, and it's really finding the opportunity that meets your financial goals and your skill set.

Deidre Woollard: When you're looking at these opportunities, obviously, you're looking at the risk, you're looking at the size of the loan. Are you looking at the location? Are you thinking about, "okay, what happens if the loan doesn't perform, and I am going to then end up owning this property"? What other tools are you using as you evaluate a potential investment?

Liz Brumer Smith: It's a great question. I think this is one of the reasons a lot of people sometimes can be turned off because it can feel like analysis paralysis because you do have to take so much into consideration. You're not just evaluating the note, meaning the balance. How many payments are remaining? What is the monthly payment? But you're also looking at the collateral behind it, so the house or the property, because it could be commercial. That means the market; that means the competition in the market; that means the value of the property based on market condition. There's so many factors that go into making sure that it makes sense. But really what it comes down to is, obviously, I'm making my offers, whether it's performing or not, based on the return I want to achieve if it's paying, and of course, making sure that my offer price aligns with its value. I never want to bid or put an offer in where if I do get the property back, it doesn't make sense anymore. Knowing the numbers for what the mortgage note is, and what my return would be if the pay is huge, but then also making sure that I'm going to be happy with that property if I do get it back at my current purchase price. Because there's always the risk that someone stops paying and you have to be happy knowing that you would want that property in the end. Liking the market that it's in, feeling confident with potential growth in that market, knowing that there's likely buyers if you do get the property back. If you do have to fix it up, will the cost to potentially fix it up be worth it? Are there fix and flippers in the area? Is that something people are looking for? Those are the things to take into account. It is a lot to analyze, but there's processes and there's checklist you can go through to make sure that you are checking all the boxes to make sure, "Okay. It fits into these categories. This makes sense."

Deidre Woollard: Has that happened to you where you've had to take the ownership of the property and then figure out how to dispose of it?

Liz Brumer Smith: Yes, and that's actually not a bad thing. When I first started, I targeted non-performing notes and a lot of the notes we targeted were vacant. I wanted the property back because I was buying them at such steep discounts. Even if it was in bad condition, most of the time, I could sell it as is and I was still making a very nice profit. We've taken properties back, and we've rehabbed them and then sold them. We actually just did that in a property in Michigan City and it's just listed this last week. I've never seen the property, but it was vacant. We knew it needed to be rehabbed. I hired a contractor locally. They did everything, and we will make a very nice profit on this deal. Then there's been other opportunities that we've taken the property back and it was in a far worse condition, especially when I was just starting off, I didn't know nearly as much as I know now. I definitely made mistakes. Sometimes I bought in a market that I shouldn't have that just didn't have demand. In those instances, I ended up rehabbing the property, but instead of selling it as is, we offered owner financing. I ended up stepping into the lender role again, and now I collect a performing mortgage note from that. Even though it might not have been a home run deal if I sold it as is, because there's so many creative solutions in this business, I was able to create a passive income from it or a passive income stream. Since I'm holding this for a longer period of time, I'm gaining tax benefits and the deal ends up being a good deal in the long run, where if I would've sold it now, it wouldn't have been. There's a lot of flexibility for how you make money. I've also had rentals from this, where we have taken the property back, fixed it up, and then made it a rental. For investors who are maybe used to the more traditional side of real estate investing, this can be a really great way to get discounted, even deeper discounts than you'd probably see at the foreclosure sales or other distressed avenues that are a little bit more popular because you're getting a step before all of those. You're the bank or acting as the bank, and you get it at an even steeper discount most of the time.

Deidre Woollard: I think that would be appealing for a lot of people since there's so much competition right now for foreclosures and pre-foreclosure. Does being the bank helps speed that process up a little bit?

Liz Brumer Smith: Sometimes yes and sometimes no. Since you're acting as the bank, you're the lender or you're the note holder in this example, you are the one foreclosing. That means you have to follow the legal proceedings for that state, which can either be judicial or non-judicial, and the timelines and costs to foreclose, depending on the state will vary dramatically. Florida can take anywhere from 10 months to two years. We have one foreclosure that we've been working on for over four years in Pennsylvania. Then we've had foreclosures that have taken 3-6 months. It really depends on the state and it depends on the borrower. If they litigate, if they fight you on the foreclosure, it can drag it out tremendously. It can also add a lot of legal costs that you might not have prepared for. Then, of course, they can also file bankruptcy and that will also stop a foreclosure no matter where it's at, it doesn't matter if it's the day before the foreclosure sale. I've had that happen so many times, it's ridiculous, and it stops a foreclosure and the foreclosure sale, and so you have to wait it out during the bankruptcy proceedings. I've had people file bankruptcy three or four times for one case as a stall tactic. Those are part of those risks. You can't control the timeline, but what you can do is try and assess the likelihood of those risks, and then when you're buying, adjust for those risks with a deeper discount.

Deidre Woollard: You mentioned having a contractor for when you're rehabbing. It sounds like maybe you'd need potentially to have an attorney on your team. Do you need a third-party servicer for the loan itself? What team members do you have to have when you're considering note investing?

Liz Brumer Smith: Great question. Having the team is crucial because you're going to be in multiple markets, so you need a core group of, like you mentioned, attorney, who can help you with both the potential foreclosure or bankruptcy. I always like to find attorneys who can do both because that's always a risk. As the lender, they could file bankruptcy and so you want someone who understands how to navigate that. We also have the servicer. We like to find nationwide servicers so that no matter which state our loan is in, we know they can handle it, and it just simplifies our backend process. Then, if we are going to be getting the property back, we would like to have a contractor to potentially do work on it if that's our end goal or at least a realtor that we can trust, that we know knows the market well. Most of the time, our realtors will happily go buy the property to check on it even if it's occupied or vacant. If you don't have a realtor in the area, there are nationwide property preservation companies that will specifically help you, especially if the property is vacant. They will help board up windows if needed. They will change locks. They'll mow the lawn or plow the snow. They'll winterize the property if you live in the area or if the property is in the area that can have damage to water pipes from freezing. Those would be the core team you have. We also have a title company that we always run title searches on all of our notes that we're looking at buying to make sure there's no potential liens like a code violation or a judgment or things that could complicate how our exit strategy if we work with the borrower or if we're trying to foreclose. Because in many states, code violations, even though you foreclose, it does not wipe those away, so it would still be attached to the property and be a financial responsibility for the bank. So knowing those things beforehand is important.

Deidre Woollard: It sounds like there is absolutely a lot to consider before you start note investing. I know that you're putting on a note investing conference, and I was wondering if you could share a little bit about that and what's involved in that conference.

Liz Brumer Smith: Yeah, thank you for sharing that. Yes, it's definitely not a niche that I think most people jump into. This is oftentimes a strategy that more advanced investors or experienced investors end up moving to. Maybe they're tired of dealing with tenants. They've had tenant structured property, or they're just over it. Maybe they are just trying to find more passive ways to invest. Whatever the reason is, most of the time, the people who are becoming note investors who are intrigued with this business, have some experience under their belt. I think that's important to consider. If you are brand-new, you can learn it. I started out pretty much brand new to this niche. So it is learnable whether you have experience or not, but just know that there is a lot of facets involved with it. I'm going to be holding a conference with my business partners, it's called the Diversified Mortgage Expo, the DME. This conference has actually been running since 2014, but we just recently purchased it back in 2019. We're really working to revamp it and really take it to a higher level. We want it to be a bridge between really high-level note investing conferences and conferences for new note investors and so we've brought on some really great speakers. We have someone from CoreLogic speaking, someone from the Mortgage Bankers Association speaking; we have institutional sellers, the ones that buy millions of dollars at a time; we have a lot of them speaking and in an attendance. Then we also have a lot of smaller note investors, even like myself, that have a lot of experience in this field, but we've slowly built our portfolio over time and started off on a smaller scale. The conference speaks to both audiences and provides breakout sessions and content that allows people to learn and grow their business as a note investor no matter where they are in their real estate investing journey. We'll have vendors and servicers that I talked about that you need on your team like attorneys, servicers, and property preservation companies. All of the things that are needed to help you succeed in this niche is really what we're focused on delivering. The conference is going to be October 16th and 17th of 2020. This year, of course, with everything going on, it is a virtual conference, but it's normally held once a year in fall, around October and for next year, if you're listening to this at a later time. It's definitely worth checking out. I think it's a really affordable way for someone who's interested in learning more about note investing to see if it is the right path for them and just to learn more about the current opportunities in the market, the state of the mortgage industry because there is a lot of uncertainty in the real estate market and mortgage markets today. I think it's a great place to learn and network.

Deidre Woollard: Excellent, thank you. I just want to wrap up with talking about forward-looking and what you're looking for in the next year or so. If you think some more opportunities are going to come up, obviously, right now, we're dealing with eviction moratoriums and things like that, foreclosure moratoriums. There's a bunch of different factors that are making all kinds of real estate investing a little bit challenging. I just want to know what your thoughts are and what you're looking out for as a note investor.

Liz Brumer Smith: You mentioned some really great things to be watching carefully as a note investor and real estate investor, in general. Every state is fluctuating and even every county is fluctuating on whether they have eviction or foreclosure moratoriums and that will greatly affect what we do as a note investor. If you buy a note that's not paying, expecting to be able to work with the borrower or to take the property back through foreclosure and you can't foreclose, that's a long waiting period that you are now responsible for. You have a non-performing asset; you're not collecting on it but there's things you're paying for like servicing fees. It's definitely something to consider but I do think in a lot of markets, there is going to be large opportunity. Right now with the unemployment rate, it is inevitable that they're going to be a lot of long-term non-performing loans, as unfortunately as it is. Forbearance has helped prolong that but eventually, those balances are going to become due and some people just are still unable to pay. Finding a solution that you can work with them on or helping them move on from the home in a positive manner, I think is a huge opportunity, similar to what we saw back in the Great Recession. The positive side here is that values of real estate have increased and they're stronger. The borrowers in general are also higher-quality borrower, there's stricter underwriting when loans have been created recently, which means that borrowers often have higher credit scores, so the likelihood of them paying again is slightly better. I do also think there's big opportunity in the commercial mortgage market just because of certain industries or certain sectors within CRE have just been hit so hard and defaults again are going to be inevitable. Since these balances are also so high, I think banks will be more pressed to sell those loans to keep their ratios within the required limits. I definitely think there's going to be big opportunities, especially in the commercial mortgage industry but I really think there's probably going to be a big resurgence of mortgage loans hitting the market again in the next year to two years.

Deidre Woollard: Yeah, I would definitely agree with that. I think that we're probably going to see it on the commercial side first just because of some of the moratoriums in place but then you look at things like hotels and there's obviously going to be some opportunities there.

Liz Brumer Smith: Absolutely, retail as well. Fannie Mae has actually done two mortgage loan sales, so they are starting to have inventory of non-performing loans, specifically in the residential space. We're already starting to see inventory hitting the market. Of course, right now, it's really trickling down to those big institutional buyers but overtime, that inventory does become more widely available even to small investors. I'm not rooting for people not paying their mortgage. Obviously, we want people to stay in their homes if they're able to pay but there are creative solutions that can help people move on with dignity and in a positive resolution. I definitely think it's a unique industry, like I said before, it's not for everyone but for those who enjoy the analytical side of real estate investing, are good at doing online research, and enjoy sifting through paperwork or doing due diligence, but also are really like that appealing aspect of it being a remote investing opportunity, that I think it really can be a wonderful opportunity to profit and to help borrowers in need.

Deidre Woollard: I love that. Thank you very much for your time today. Just a reminder to the listeners, you can find all of Liz's writing about note investing and all sorts of other real estate subjects on millionacres.com.

Liz Brumer Smith: Thanks so much for having me. [MUSIC]

Deidre Woollard: Thank you for tuning into The Millionacres Podcast. I hope you liked today's show. If you enjoyed this episode, please consider subscribing through your favorite podcast provider, and if you have any questions, please feel free to drop us a line at help@millionacres.com. Stay well and stay invested. People on this program may have an interest in the deals, offerings, or services they discussed, and Millionacres or the Motley Fool may have a formal recommendation for or against. Always consult a certified tax professional before acting on tax advice and do not buy or sell assets based solely on what you hear. [MUSIC]